The Life & Pension Industry's Vicious Circle

The Life and Pension Industry is starved of 'new' business. Economic woes have led to folk reducing or stopping their contributions for Life Insurance, Pensions and long-term Savings and Investments plans. Others have simply put off their decision to buy these products because of all the uncertainty. The Government decision to slap a 1% Levy on Life Insurance and Savings and Investment Policies has not helped matters either.

One would assume that this would lead to Life & Pension Companies introducing innovative consumer friendly ways of enticing punters to buy their products. Instead of bending-over-backwards to acquire 'new' business, it would appear that they have resigned themselves to a policy of 'rob your competitor'. I am defining 'new' business, as transactions that are not set up with another provider already and have not reached their maturity/end date.

The industry standard at the moment is to offer incentives to advisors to move their book of business from one provider to another. I cannot, for the life of me, understand why the companies are even entertaining this zero-sum game. The exercise is fraught with danger, in particular, from a consumer perspective.

In my humble opinion it is a disaster waiting to happen. The company that receives the transfer of business gets to report magical and illusory 'new' (to them at least) business figures at the end of the year. If you're a manager and you are rewarded on 'gains' in market share, then you are going to be quids in at the start of next year. If you are an advisor, you will also have received some incentive payment. Let's face it, you are not doing it for no reward. However, if you are a consumer, you are going to be caught in the cross-fire.

There may be genuine cases where transferring a transaction from one product provider to another is in the best interest of the policyholder but I would argue that, in the majority of situations the reasons for the transfers are spurious and incentive driven.

Something needs to be done. The Life & Pension Companies need to cop themselves on and stop encouraging the transfers of business from one provider to another. Otherwise, they will be mired in a mis-selling scandal and the business models that they currently employ will implode, as the same transactions are passed around from Billy to Jack every few years. They have to acknowledge that the consumer is the most important person to the survival of their business.

To the consumer, I say : 'If a proposal is presented to you to transfer from one product provider to another, make sure that the reasons for the transaction are in your best interest. Get a second opinion. Ask for confirmation, in writing, that there will be no entry or exit penalties/charges on the 'new' transaction and that you receiving a more favourable annual management charge. Ask for written confirmation from the company that the business is being transferred to that the advisor has no 'deal' with them that stipulates a required minimum level of business.'

It's very disheartening to be watching this from within the industry.

Caveat Emptor.

Surveys - What's the point?

I'm sick to death of being asked the same questions, year in year out, by the same companies. The main thrust of these surveys is to establish who 'I' consider to be the 'best' Life & Pension product provider; under a myriad of headings.

I have come to the conclusion that their sole purpose is to satisfy the egos of senior management, because the outcomes would appear to be ignored. Perhaps there is some 'bonus' payment for moving up the industry 'ranking' or maybe they want me to adapt to their corporate belief system? Then, and only then, will they "value my opinion".

You don't need an annual survey to find out what companies are in favour, it is reflected in the volumes of business they are transacting. The dogs in the street know why they are successful.

Two years ago I completed a survey for a company and raised a servicing issue. The following year I refused to complete it, as the original issue had not been resolved. Rather than implement any change to resolve the matter raised in the survey, the company choose to ignore my protest. So, what's the point?

I presume that there is an annual budget for these surveys that 'must' be spent. The inaction on the results just shows that it is a waste of marketing money. Rather than ask 'the market' what you are doing wrong, why not just ask your customer service/account managers? They are the ones that are getting the abuse on a daily basis and are closest to the coal face.

Re-Balancing of Portfolio

When you have decided on an investment strategy for your Pension or Investment Product, you will no doubt have given due consideration to as to what percentage of your money will be allocated to each asset class (Cash,Equities, Bonds and Property). This will probably be based on your attitude to risk and any existing assets that you may have.

At the end of a certain period you may decide to 're-balance' your portfolio so that you have the same percentage of your investment is each asset class, that your started out with. The changes in your investment occur because the values of the different assets will have performed/underperformed over a period of time. This is like a mini-audit of your portfolio so that you can reassess how much risk you are exposed to on a given day.

The following is provided as a practical example, using historical data, of how this works in practice and is not to be taken as advice. The assumptions used are that the Annual Management Charge is 1% and that 100% of your money was invested from day one.

€10,000 invested on 01/01/2001 into the Zurich Life's 5*5 Global, Balanced and Active Fixed Income Funds (1/3, 1/3, 1/3 respectively). The end values are calculated as at 31/12/2009.

With No Re-Balancing (no changes to initial allocation for 9 years): The value of the investment at the end of December 2009 would have been €13,291.37

If the client had re-balanced (making sure the 1/3 ratio in each Fund) on the 1st of January every year : The value of the investment at the end of December 2009 would have been €13,887.92


Again, this historical information is provided purely for illustrative purposes only and should not be construed as advice.